Malev Board Says Airline's Finances Are Unsustainable

Hungarian airline Malev appears to be close to running out of money. In a statement to the airline’s board of directors Monday, CEO Lorant Limburger said that despite improving operating results, “the financing of activities had become unviable and was unresolved from the end of January.” In order to ensure continuing operations, the chairman of the board instructed management to come up with a “liquidity plan for the immediate future” by the end of the week.

Malev continued to operate scheduled services on Monday.

The board also approached the government “to do everything possible to resolve the situation,” but acknowledged that its room to maneuver is “extremely limited.” The European Commission earlier this month ordered Malev to pay back millions of dollars in illegal state aid to its government. Hungary vowed it will comply with the ruling.

The Hungarian government, however, declared Malev Hungarian Airlines a “business of prime strategic significance.“ The decree took effect on Monday morning and has significant consequences for the airline and its creditors.

The new status makes it impossible for the creditors to launch bankruptcy procedures against it. It makes it easier for Malev to continue flying at least in the coming days. The airline also said it reached an agreement with International Lease Finance Corp. (ILFC) to continue to provide aircraft.

Designating a company a business of “prime strategic importance” is for situations in which neither the owner of a company deemed important to the country or the economy nor the government is able to support the company financially.

For the time being, the designation enables Malev to continue operating despite its lack of funding. The decree is supposed to provide struggling companies with enough time to find new investors. However, numerous attempts to privatize the airline have failed. Malev is now 95% government-owned, and several potential partners, such as Czech Travel Service and China’s HNA Group, have pulled out of investment talks. Hungarian media are reporting contacts with Spanish low-fare airline Vueling, but such a tie-up seems unlikely.

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